The new cross-border commuter agreement between Switzerland and Italy has entered into force on 17.7.2023

With the communication from the Federal Department of Finance dated 19.7.2023, a very lengthy process has been concluded. The new provisions will primarily take effect for employers from 1.1.2024.

Scope:  (inofficial translation)

Art. 2 General definitions of the Agreement between the Swiss Confederation and the Italian Republic on the taxation of cross-border commuters

For the purpose of this Agreement means:

• a) the term “border area”:

(i) in Switzerland, the cantons of Grisons, Ticino and Valais,
(ii) in Italy, the regions of Lombardy, Piedmont and Valle d’Aosta and the Autonomous Province of Bolzano;

• b) the term ” cross-border worker ” means a resident of a Contracting State who:
  
  • (i) is a tax resident of a municipality whose territory lies wholly or partly within a 20 km zone on the border with the other Contracting State,
  • (ii) is gainfully employed in the frontier zone of the other Contracting State for an employer resident there or for a permanent establishment or a fixed base in that State; and
  • (iii) returns in principle each day to its principal tax domicile in the State of residence in accordance with point (i);

the competent authorities of the Contracting States shall determine by mutual agreement the details of the application of subparagraphs (b)(i) and (iii);

What does this mean for companies in Switzerland?

• Distinction between “old” and “new” cross-border workers:
  • “Old” cross-border commuters are those who were already cross-border commuters in the cantons of Graubünden, Ticino or Valais between 31.12.2018 and 17.7.2023 in accordance with the 1974 cross-border commuter agreement. A transitional arrangement applies to them. These persons will continue to be taxed exclusively in Switzerland, whereby Switzerland will pay the Italian border communes financial compensation in the amount of 40 percent of the withholding tax levied in Switzerland until the end of the tax year 2033.
    Cross-border commuters who are employed in Switzerland in the border area on the date of entry into force of the Agreement or who were employed in the border area between December 2018 and the date of entry into force of the Agreement by an employer resident in Switzerland or by a Swiss permanent establishment or fixed base, shall remain liable to tax in Switzerland only, irrespective of an interruption of the employment relationship or a change of employer, provided that the conditions of Article 2 letter b continue to be met and the employed activity is carried out in the border area of Switzerland for an employer, permanent establishment or fixed base in Switzerland.
  • “New” cross-border commuters are persons who enter the labour market after 17.7.2023.
• Application of different tariff codes from 1.1.2024 in the cantons of Graubünden, Ticino and Valais for cross-border commuters under the agreement:
  • The new tariff codes R, S, T, U and V apply to the “new” cross-border commuters who are to be taxed in accordance with Article 3 paragraph 1 of the CH-IT Cross-Border Commuters Agreement.
  • For old cross-border commuters, the ordinary withholding tax rates (A, B, C, H and G) are applied..
  • Tariff code F can be deleted
• Counting 45 non-return days for professional reasons per calendar year
  If these work-related non-return days are exceeded, the special cross-border commuter status ceases to apply and the normal double tax treaty between Switzerland and Italy applies.

• Additional annual information requirements according to Article 7 of the new agreement (transmission to Italy by 20.3. of the following year for cross-border commuters with G EU/EFTA permit)
  More detailed instructions will be needed, especially for the italicised and bold passages (inofficial translation)
  • a) the surname, first name, date of birth and home address of the cross-border commuter;
  • b) for cross-border commuters resident in Switzerland, the place of origin; for cross-border commuters resident in Italy, the place of birth;
  • (c) the tax number assigned to the frontier worker by the State of residence;
  • (d) the gross amount of salaries, wages and similar remuneration received by the frontier worker;
  • e) the amount of compulsory social security contributions paid by the cross-border commuter;
  • f) the total amount of withholding tax levied on the salaries, wages and similar remuneration of the cross-border commuter;
  • (g) the name, address and tax number of the employer.

The competent authorities of the Contracting States shall determine by mutual agreement the details of the application of this paragraph.

It remains open whether there will be a telework agreement. In the Additional Protocol there is an explicit reference to the possibility of concluding an agreement on telework or a mutual agreement. From the current point of view, cross-border commuters may not perform a day of telework in Italy in order not to lose their status and be taxed as normal under the DTA Switzerland – Italy. This fact is particularly explosive for the “old” cross-border commuters.

Further information

• No NOV (subsequent ordinary assessment in Switzerland) for quasi-residents or NOV ex officio by the Swiss authorities for genuine cross-border commuters from Italy.
• Mutual agreement procedure if a cross-border worker is of the opinion that he/she is to be classified as a cross-border worker under the old agreement.

Various details will have to be published in the next few months so that the companies can prepare for 1.1.2024. It must be assumed that there could be further agreements on understanding in the coming months.
The payroll software companies will have to make various adjustments. Various modifications have already been defined in the ELM Standard 5.0.

Since affected companies must also install the changes for AHV21, an update must be planned and an appointment made with the responsible partner. As with all updates, resources are scarce in each case.

For more details on the regulations, see: (available in German French and Italian) https://www.admin.ch/gov/de/start/dokumentation/medienmitteilungen.msg-id-96751.html

The new developments will be covered in a wide range of seminars in the second half of 2023: (in German) https://www.zulaufgmbh.ch/veranstaltungen-workshops/